UAE: The future of cleantech?

It is unfortunate that the initiatives of the Gulf Cooperation Council toward cleantech were far overshadowed during the last 18 months by the news coverage of volatile oil prices and massive real estate projects in Dubai.

The Middle East (especially the member countries of the GCC) holds vast opportunities for investors in cleantech. There are billions of dollars that have been pledged to “greening the gulf” by the United Arab Emirates, Bahrain and Qatar, among others.

But the United Arab Emirates holds the greatest promise for cleantech investment. Not only is the UAE visionary, proactive and cash-rich, it statistically is the country in the most need of ecological reform.

In March of 2008, the World Wildlife Fund (WWF) released data that revealed that the average person in the United Arab Emirates puts more demand on the global ecosystem than any other country, giving it the world’s largest per-capita ecological footprint.

The WWF rankings are measured in global hectares—the area of biologically productive land and sea needed to provide the resources consumed by an average person. The UAE’s ecological footprint measured 11.9 global hectares per person, compared to a global average of 2.2 hectares a person. Even the United States measured 9.6 hectares per person.

One of the largest contributor factors to this ranking is the use of water. Roughly 25 percent of water in the Gulf region has already been consumed, according to reports about energy consumption in the UAE. One-fifth of the water is being used for power generation.

That problem is likely to get worse, as energy demand is rising more rapidly in the UAE than in the world at large. The International Energy Agency estimates world energy demand is estimated to increase by 45 percent in 2030, but current estimates suggest that the domestic demand for power in the UAE will more than double by 2020.

According to The World Energy Council, the Gulf will require 100 gigawatts of additional power to meet demand. Estimated costs range from $900 million for Bahrain, $800 million for Oman, $600 million for Qatar, $15 billion for the Kingdom of Saudi Arabia, and up to $10 billion for the United Arab Emirates.

As is the style of the UAE, the government announced mega projects and major financial backing to reduce their environmental impact through green building laws and the creation of a zero-carbon, zero-waste, car-free city development project. Private equity investors in the region also began to buy interests in solar, wind and biodiesel.

But soon after these announcements the world stopped due the the economic crisis.

During my last trip to Dubai I was acutely aware that for the first time in many years I could hear the prayer calls coming from the mosques. I mention this because it highlights the dramatic decrease in building activity.

But a lesson has been learned, and it is one that will supplement the government’s cleantech initiative going forward, ensuring the Emirates emerges as the leader in cleantech implementation and investment opportunities.

Speaking with both investors and real estate developers over the last few months, I have come to realize there has been a paradigm shift with respect to the concept of a real estate asset. There is a movement away from the traditional income-per-tenant model, to a more sustainable income stream, namely energy production.

Over and over I heard the same concept: This downturn highlights the need to secure a more stable income stream from real estate.

Hence, while the UAE Government has created a mandate to reduce the carbon footprint of the country, I think it will be the demand for stable income by developers that will truly drive demand far above expectations going forward for cleantech in the region.

Given the technology now exists, it only seems logical that any new construction will be thought of as an independent power generation stations almost as much as they will be thought of as income-producing assets through occupancy. Why wouldn’t a builder incorporate solar panels, wind turbines and energy efficiency systems in order to secure a stable stream of income? …SOURCE

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UAE Government to Slash Food Prices

UAE to slash food costs as global prices plunge

DUBAI – The United Arab Emirates said on Tuesday it would move to bring down the cost of basic food items charged by retailers because they were no longer appropriate following a slump in world commodity prices.

The second-largest Arab economy last year signed a series of agreements with supermarket chains to fix the cost of basic food items such as sugar, cooking oil, rice and flour at 2007 levels in an effort to curb inflation at a 20-year peak.

But many of those prices now exceed the global average by 25 percent after oil prices collapsed almost $100 a barrel from a peak last July, said Hashim Saeed Al-Neaimi, the manager of consumer protection at the UAE’s Ministry of Economy.

“We need to match the overall downturn in global food prices,” Neaimi told Reuters.

The ministry planned to sign new deals with retailers to reduce fixed selling prices for foods, which would also cut into retailers’ profit margins, he said.

“Since food prices have gone down globally it is only fair to bring them down here too and this will take effect in about one to two weeks’ time,” Neaimi said…SOURCE

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Contradiction in UAE’s Economic Forecast: UAE Won’t Enter Recession, But Central Bank Can’t Predict Growth Outlook

This is one of those Twilight Zone statements we get in the UAE which basically tell us nothing and are really not even good propaganda.  So, let me make my own prediction: the UAE will (or will not) enter recession this year.  Got that?

The Governor of the UAE Central Bank, Sultan bin Nasser Al Suwaidi, said on Wednesday that the country is not going into recession this year.

“There could be a low single-digit economic growth in the year 2009”, he said, while speaking to reporters after meeting with a French delegation headed by Christian Noyer, Governor of Central Bank of France, here in the capital.

The Governor’s comments come at a time when private sector economists are forecasting a low growth in the range of 0.0-2.0 per cent this year, declining from estimated 6.0 per cent in 2008. In the last quarter of 2008, the UAE started experiencing significant economic headwinds as a result of global economic crisis. The country’s two main stock exchanges in Dubai and Abu Dhabi fell 72.5 per cent and 47.5 per cent respectively in 2008 and have continued to slide downwards since the beginning of 2009. The recent fall in oil prices to $35 a barrel is also expected to significantly affect the oil revenues. The UAE’s oil revenue is projected to be about $84 billion in 2009 from $106.5 billion in 2008.

Asked whether economic recovery can take place in the second half of the year, as some analysts are forecasting, Al Suwaidi said, “I cannot expect anything at this point in time… I am not a magician… as it will also depend on the circumstances because things on economic front are evolving.” He also added that the Ministry of Economy was the competent body to give outlook on economic growth…SOURCE

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UAE Stocks Drop For Two Days and Wipe 29 Billion off of the Books

This is on top of the other huge drops this year as foreign capital has fled the UAE equity markets.

UAE real estate stocks plunge, dragging benchmarks

http://archive.gulfnews.com/articles/08/12/22/10269245.html

12/22/2008 10:34 PM | By Gaurav Ghose, Financial Features Editor

Dubai: About Dh29 billion has been wiped off the UAE’s stock markets in two days of steep losses that left them at lows last seen more than four years ago.

And the coming days do not look good, say some analysts.

“Real estate and the banking sectors are facing a tough time with many [loan] defaulters. With the realty sector facing a major correction, the near term story for UAE market looks negative,” said Shiv Prakash, equity investment analyst at Mac Sharaf Securities.

The real estate and banking sectors have been among the worst performers this year.

The slump in oil prices, which fell below $40 (Dh147) this week, is also likely to weaken region’s economic growth, aggravating the already frayed sentiments of the investors.

At the close of business yesterday, the Dubai Financial Market General Index closed 3.91 per cent lower to 1,732.20. The benchmark has slumped about 71 per cent this year. Abu Dhabi Securities Exchange lost 2.88 per cent to end at 2,502.22.

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Gulf Countries Will Run a Defecit This Year

Huge surpluses will cushion budget deficits

http://archive.gulfnews.com/articles/08/12/20/10268661.html

12/19/2008 11:03 PM | Reuters

Dubai: Saudi Arabia and other Gulf oil producers will almost certainly run unaccustomed budget deficits next year as they take a double hit from the collapse in oil prices and deep crude output cuts, economists said on Thursday.

Still, huge surpluses amassed during a six-year boom when oil prices rallied as much as seven-fold compared with 2002 levels will allow the biggest oil-exporting region to keep on spending to sustain local economies during a global recession.

“If oil averages $45 (Dh165.3) a barrel next year, then I expect to see significant budget deficits in Bahrain, Oman and Saudi Arabia,” said Simon Williams, senior economist at HSBC in Dubai.

“We need to keep the shortfalls in perspective, however.

“Next year’s deficits won’t even begin to approach the value of the surpluses generated over the past five years.”…

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CITI Bank Loans to Dubai Raise the Possibility of Future Economic Trouble For the Emirate

Take a careful look at this article from the WSJ from this week.

With questions about Dubai’s looming debt obligations swirling, Citigroup Inc said it had raised $8 billion for the Persian Gulf city-state over the course of the past year and still had a positive outlook on its economy.

CitigroupChairman Win Bischoff was quoted in the bank’s statement Monday as saying Citigroup continues to see Dubai as among its “most significant markets.”

“This is in line with our commitment to the [United Arab Emirates] market in general, and reflects our positive outlook on Dubai in particular,” the statement quoted Mr. Bischoff as saying.

Dubai’s transformation in recent years from a sleepy backwater port to a booming financial and shipping hub has come thanks to large infrastructure projects undertaken by state-owned companies such as Emaar and Dubai World. Dubai’s growth is now under threat because the emirate has had to rely almost entirely on outside financing to fund these projects, and project finance and foreign credit lines have shrunk because of the global credit crunch and falling oil prices.

Citigroup, which enjoys a longstanding banking relationship with the emirate, voiced its confidence at a time when Dubai has attempted to reassure investors and its creditors that it is capable of servicing the $80 billion of debt that the city-state and its companies have outstanding. More urgently, Dubai has $12 billion of nonbank debt coming due in 2009, according to Fitch Ratings.

Analysts and bankers in Dubai question where that cash is going to come from next year, especially since two pillars of Dubai’s economy — real estate and banking — are feeling the pinch. The statement from Citibank did little to address those concerns…SOURCE

Add to the artcle’s concern over banking and real estate a very real slow down in tourism and transport and the perfect economic storm beginning to hit the UAE is just starting to emerge.  Of course, you have to wonder what is going on a Citi Bank too when just in November they sold 6 billion in Dubai debt at a loss.

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Food Prices Finally Set to Drop in the UAE

Prices of daily-use commodities are expected to drop by 25 per cent in January when the fresh stocks arrive, Dr Hashim Al Nuiemi, Director of the Consumer Protection Department at the Ministry of Economy, told Khaleej Times on Sunday.

The prices of several commodities have dropped in the exporting countries following the huge drop in oil prices in the international market.

The ministry has reached an agreement with the major retailers in the country to reduce prices of commodities as soon as the current stocks imported at high prices are sold out and the new ones arrive.

“We will hold a meeting with them very soon to make sure that the current stocks are cleared by January. After this, the prices will be reduced,” Dr Al Nuiemi said. The MoE has started implementing several initiatives to make sure that the traders stick to their commitment to lower prices as per the agreement.

The ministry’s inspectors are out on the job at markets.

Faisal Al Arshi, deputy director of the Abu Dhabi Cooperative Society, said they are expecting a price drop of at least 30 per cent.

“As soon as we receive the fresh stocks under the new price list, the society will also reduce the prices of the current stocks though they were imported at high prices.

In fact, the prices of rice and wheat flour, which had been on a high for several months, have already come down.

“The prices of basmati rice of all companies came down by Dh4-5 in the last two months. Before November, the price of a 5kg bag of basmati rice was Dh50, now it is Dh45. Similarly, the prices of non-basmati variety from Thailand and Vietnam have also dropped by around Dh10,” said a retailer in Dubai. The price of wheat flour too has witnessed decline. A 10kg bag, which earlier cost Dh30, is now priced at Dh26.

Residents have expressed their delight at the good news of expected lower prices of essential commodities…SOURCE

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UAE is Now Officially in an Economic Slump

I love how the language has changed over time.  At this point we are just waiting for the word property ‘crash’ to be used for the first time.

UAE poised for two-year slump says Central Bank Governor

http://archive.gulfnews.com/articles/08/12/12/10266498.html

12/11/2008 11:41 PM | Reuters

Frankfurt: The UAE is poised for two years of slow economic growth as its property sector is hit by the global financial crisis and banks rein in expansion, the central bank governor said.

Growth in gross domestic product (GDP) in the world’s fifth-largest oil exporter would fall to low-single-digit levels in 2009 and 2010, Sultan Bin Nasser Al Suwaidi said, as an economic boom spurred by six years of high oil prices comes to a close.

Still, a slump in the booming property sector would be limited as the country continues to adopt an expansionary fiscal policy, although it will take steps to ring-fence its banking system, Al Suwaidi said…

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Oil’s Last Hurrah?: Why the Gulf May Never See $100 a Barrel Oil Again

When the Saudis upped their output to try to save the Republicans in Washington last Summer, few thought that  it would be the beginning of the same time of glut that hit in the early 1990’s when gasoline dropped to under $1.00 per gallon in the U.S.  However, that’s exactly where things are headed now.  It’s another perfect economic storm for the oil producers.  Demand crashed just as the KSA was trying to leverage political power in Washington D.C. through oil.  This was supposed to keep the economy on-track until after the November elections.  However, the wheels came off the economy a few months earlier than expected (in October).  This left OPEC in a very bad position.

Now, the price has fallen so much that there is almost no safety net.  Virtually every OPEC member (with the exception of Abu Dhabi @ $25) are at or below break-even pricing for oil.  This is going to put huge pressure on the Gulf economies going forward.

The bigger question is what happens to price now?  The situation is very similar to the crash of the early 1990’s.  Unless OPEC gets serious about controlling supply, I may take 5-10yrs to get the price where the Gulf economies want it. However, the push to keep some revenues coming in will keep the oil flowing.  OPEC’s problems will be much bigger over this price breathing space.  The world is gearing up to give up oil.  Alternative vehicles of many different types will come online over the next few years.  This will keep a permanent downward pressure on oil prices from about 5 years out when the manufacture and sales of such vehicles reach critical mass.

In the near term, oil will see $20 a barrel long before it reaches $100 again.  Peak oil theory is dead.  The new theory is ‘dead oil’.  Within 20 years the oil market will be relatively insignificant on the global stage. And, unless the Gulf can reposition itself economically there will not be a positive future going forward.

Here is the latest article on oil price from the Gulf News:

Oil dips to four-year low

http://archive.gulfnews.com/articles/08/12/05/10264892.html

12/04/2008 11:35 PM | By Himendra Mohan Kumar and Shakir Husain Staff Reporters

Abu Dhabi/Dubai: The price of global benchmark crude on Gulf News fell to below $46 (Dh168.9) per barrel to its lowest in nearly four years, causing more concern among major producers about the commodity’s sliding value.

Leading members of the Organisation of Petroleum Exporting Countries (Opec) with huge infrastructure projects to fund are worried about their shrinking export revenues.

With the prospects of global economic growth weakening, oil has shed about two-thirds of its value since July when it traded more than $147 per barrel.

In yesterday’s early trading, US light crude for January delivery was down 57 cents to $46.22 a barrel. It earlier touched a low of $45.30, the lowest since February 9, 2005. London Brent crude was down 67 cents at $44.77.

Yesterday Iran said $75 a barrel was a fair price, echoing earlier comments by Saudi Arabia’s King Abdullah Bin Abdul Aziz and Oil Minister Ali Al Nuaimi.

Iran also believes that the market is oversupplied and producers should cut output to balance the fundamentals of supply and demand.

“It is obvious that the market is oversupplied,” Reuters quoted Iran’s Opec governor Mohammad Ali Khatibi as saying.

Opec will announce a production cut at its meeting in Algeria later this month, Qatar’s Energy Minister Abdullah Bin Hamad Al Attiyah told reporters in Dubai on Wed-nesday.

Industry analysts said the fall in oil price could harm the Gulf economies, but for now these countries are cushioned against lower crude prices because of the financial reserves they have accumulated from the previous high revenues.

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